The banking sector has recently taken a great hit reflected in low asset quality, liquidity and solvency challenges, and contracting cash circulation. Other adverse factors include prolonged drought driving food inflation and stressing disposable incomes as well as reduced private sector growth.
This was reflected in the Equity Group Holdings recently released quarterly results for the year 2017. However, the Group registered an 11% growth in assets to reach Kshs 518.2 billion on 30th September 2017 from Kshs 331.4 billion. Amidst the very challenging environment occasioned by presidential elections which have caused political uncertainty, the Group maintained resilient performance. In a bid to mitigate against the prevailing economic conditions, the Group enhanced its liquid assets in Kenya to achieve a liquidity ratio to 54.8% from 45% registered last year.
The Group’s Non-funded income grew by 28% from Kshs 16.6 billion to 21.3 billion which offset the effects of reduced interest income. The total income for the nine months period ending 30th September 2017 was 48.7 billion which is at par with last year’s 48.9 billion.
According to James Mwangi, the Managing Director and CEO of The Equity Group Holdings Plc said ‘The Group progressed further in its initiative to grow non-funded income and achieved a ratio of funded to non-funded income growth of 56.4 in the current period against a ratio of 66.3 over the same last year. Non-funded income growth was achieved through mobile banking commissions which grew by 135% to Kshs 949 million.’
Other highlights to note are;
- The non-risk assets grew by 37% from Kshs 93.1 billion to 127.7 billion with improved yields of 11.4% from 10% last year. This was due to focus on quality and efficiency promoting investments.
- Their loan book declined marginally by 72% from Kshs 271.4 billion to 265.4 billion.
- A growth of 113% in interest income from government securities was recorded despite interest income on loans and advances in Kenya declining by 36% from Kshs 28.5 billion to Kshs 18.3 billion.
- The growing high yield in the loan book in the regional subsidiaries offset the combined effects of capping interest rates, contraction of interest yields and a reduction in the loan book to limit the decline in interest income from 39.8 billion to 35.4 billion.
- The Groups non-performing ratio of 7.4% attained from focus on asset quality was against the industry average of 10.7%. This was with a reduced cost of risk of 1.41% from 1.63%.
- The innovation and digitization strategy led to 91% of all transactions moving from the fixed cost delivery channels of bank branches and ATM’s to variable cost delivery channels such as mobile, internet, mobile apps, agency and merchant banking. Off the 341.3 million monetary transactions only 30.3 million passed through these fixed cost delivery systems.
- Staff costs reduced by 11% while still registering a 2% increase in total costs. Despite the 15% reduction in net income, the cost income ratio remained stagnant at 51.6%.
- Diaspora banking saw an increase in remittances by 54% from Kshs 9.6 billion to 14.8 billion.
- Mobile innovation, Equitel helped the Group capture 25.6% of the value of money transfer in Kenya and 33% of the national market share of mobile commerce.
- The cost of funds reduced from 2.8% to 2.6% mitigating the negative impact of interest capping which saw yields on interest-earning assets decline from 14.2% to 11.2% and a lower net margin of 8.6% from 11.4%.
- The Group’s Profit before tax reduced from 21.5 billion last year to 20.7 billion. The profit after tax, therefore, suffered a decline registering 14.6 billion from 15.1 billion last year.
- The return on equity stood at 22.6% with a return on assets registering 3.9% with strong capital ratios e.g. the core capital risk weighing at 19.86%.
On the overall company performance, Dr. James Mwangi said, ‘The Group outperformed the market and maintained the performance outlook for the year 2017 save for the growth in deposits as a result of the unexpected slowdown in the economy occasioned by temporary macroeconomic headwinds.’
‘The subsidiaries in Uganda, Rwanda and South Sudan, Tanzania and DR Congo collectively increased their profit by 53 % and enhanced their contribution to the group from 7% to 10%’ he later added.
The Group strategy and resilience was also validated locally and globally. Moody’s, a huge credit rating agency rated Equity Bank Kenya with a global rating of B1 and stable outlook which was also the same rating as the Kenyan Government. They were also given a National rating of Aa1 which is the highest credit within Kenya. Moody’s cited strong brand recognition, solid liquidity buffers, and resilience funding profile established a domestic franchise and extensive adoption of digital and alternative distribution channels as the basis for their rating.
The Global Credit Rating rated Equity Group on a long-term national scale of AA and a short-term national scale of A1 with a stable outlook. The ratings reflected the Group’s strong competitive position in the Kenyan banking industry. The ratings are also as a result of robust internal capital generations and profitability which remained resilient in 2016 despite operating conditions.
The Group ranked 806 overall in The Banker’s 2017 Top 100 World Banks. It garnered the position 11 on return on assets, position 37 on capital asset ratio and position 45 on profits on capital.
The Groups social impact through its investments include;
- 14, 168 academically gifted but financially challenged pupils across Kenya have received comprehensive secondary school education and leadership scholarships. This was in partnership with MasterCard and other partners.
- 5,060 university students have gone through the Equity Leaders Program with 403 of them benefitting from airlift to global leading universities.
- 1,455,759 women and youth have received a free 13-week financial literacy training while 37,402 medium entrepreneurs have gone through a three-year coaching and mentorship program.
- 600 peasant farmers have transformed to agri-business through training and 2000 medium sized farmers have been supported through capacity building and market linkages.
- The Group has disbursed 41.7 billion in partnership with The Government and development partners in Kenya, Rwanda, and South Sudan. This is aimed at targeting refugees, social protection, agriculture input subsidiaries, education and water among others.
Globally, The Group is ranked as the best stable credit in Kenya and ranked as the most preferred Bank on Customer preference and satisfaction by Geopoll.